FOMC - Federal Open Market Committee

FOMC Announcement (Wed):

While traders are not expecting the FOMC to adjust policy rates at next week's meeting, attention will be on the Committee's updated economic projections. It's previous forecasts from December saw the central bank take a more dovish view than markets were expecting, cutting its near-term growth and inflation outlook; it also saw a lower amount of rate hikes in 2024, pencilling in three 25bps rate cuts this year, with the FFR target seen ending the year between 4.50-4.75% (vs its September projection that rates would end 2024 at between 5.00-5.25%). Ahead, traders expect the Fed to lower rates by 75bps or less this year (three 25bps cuts), according to 58 of the 108 economists surveyed by Reuters; still 26 of those surveyed are still looking for 100bps of rate cuts this year (four 25bps rate reductions). However, a majority (38 of 44 surveyed) see risks that the updated projections will show a fewer amount of rate cuts. The easing cycle is expected to start in June, which is in line with market-based pricing. "The Fed is seeking 'greater confidence' on inflation before it starts normalising its policy stance," Bank of America notes, "we expect progress on inflation in the coming months will give the Fed confidence to begin a gradual cutting cycle in June," and added that "a more forward-looking Fed might put more weight on low inflation expectations and cut sooner, but this Fed is data dependent and wants to avoid backtracking after it starts." Traders will also be focussed on any commentary on quantitative tightening (QT), with many looking for the central bank to soon announce it will slow and then stop the process. The consensus seems to expect this announcement to come in June, but some think it could come as soon as the March meeting, according to the Reuters poll; additionally 17 of 26 surveyed think the Fed will have concluded the tapering of the programme in Q1 2025, or later.